Manufacturing may have declined in Britain from its 1970s heyday, when it accounted for 25% of the UK’s GDP, but the sector still retains a major influence - particularly when it comes to exports.
Today, manufacturers are responsible for almost half of all UK exports. Put another way, around 50% of what the country makes is sent overseas. That adds up to hundreds of billions of pounds being exposed to the mercy of the international currency markets every year.
Despite being hit hard by the pandemic, challenging economic conditions, labour shortages and supply chain issues, manufacturing has largely managed to weather the storm. In 2022, the total value of UK manufacturing sales stood at £429.8 billion – that was a 7% increase on the previous year. If not exactly booming, the sector is moving in the right direction.
Even so, many businesses are reliant on complex ‘just in time’ supply chains, which often means, logistically, bringing more than one country into the equation. As a result, this places great emphasis on the speedy and efficient expediting of international payments surrounding the goods and services involved.
Every time there is a need to undertake a cross-border transaction, this is almost certainly going to expose the business to some form of foreign exchange risk. Any fluctuations in currency between the relevant jurisdictions could lay the company open to potentially significant financial loss.
Currency risk - a constant threat for manufacturers:
As mentioned, manufacturing companies can be particularly vulnerable to currency exposure. It’s a tried and tested practice to outsource production overseas, where materials and labour can be considerably cheaper. The advantages of this are obvious in terms of efficiency and increased profit margins. But frequent exposure to currency fluctuations, resulting from buying imports from suppliers and making international payments to overseas workers, could always threaten to wipe out those all-important margins.
This can be especially acute for manufacturers where there is a requirement to order parts weeks or months in advance – leaving bags of time for exchange rates to move around to a company’s potential disadvantage.
For those manufacturers who choose to base their production in Britain, whenever the pound falls in value (for whatever reason), their products end up being worth less than expected.
Brexit may be past, but foreign exchange exposure is present:
Brexit certainly shook things up. In the immediate aftermath of the result, the 20% drop in the value of the pound made British exported goods more competitive. But the downside was that it increased the costs of businesses who imported raw materials that were priced in foreign currencies.
It was a time of uncertainty and anxiety for many in the sector. Sentiment does seem to have shifted since then, however. A 2022 poll of British manufacturers found that nearly three quarters of companies sampled had increased productivity and saw a continuing picture of improvement.
But just because the controversies surrounding Brexit may be dissipating, the risks associated with foreign exchange exposure never go away.
The Importance of teaming up with a leading FX provider:
Foreign exchange volatility is, therefore, an ever present - it goes with the territory in the world of manufacturing. Unless your business makes and sells everything locally, having a clear foreign exchange strategy is essential to optimise most manufacturing operations.
That’s why having the support of a reputable foreign exchange specialist is a smart move, in order to maintain profit margins. That doesn’t mean relying on the services of a mainstream or High Street bank.
What it does means is working with a business that provides a comprehensive range of foreign exchange tools and hedging strategies. One that is experienced in all aspects of global payments, involving the sending of regular cross-border transfers or ad hoc payments – to and from anywhere in the world.
It could make all the difference between being a highly successful manufacturing exporter/importer or one that regularly struggles to compete.
About MFX
MFX is a dedicated foreign exchange brokerage, well-versed in assisting manufacturing businesses with their FX requirements.
Whilst we are Isle of Man based, we are also heavily focussed on assisting manufacturers in the UK and overseas, who have a requirement for exporting and importing all manner of goods and services.
We are a key partner of moneycorp, world leaders in the international payments arena, who provide a wide range of currency exchange solutions to the manufacturing sector.
If you are concerned about your current level of exposure to FX risk or feel the time is right to seek an alternative approach to how your international money transfers are handled, call MFX directly on 01624 694731 or email enquiries@mfx.im
MFX Ltd is a wholly owned subsidiary of the AIM-listed Manx Financial Group.
